What portion of salary qualifies as "foreign earned income"?

tl;dr: do US taxpayers resident abroad report their UK income before or after NI/PAYE/pension deductions?

This seems like it should have a straightforward answer or a FAQ or something but searches here and elsewhere have revealed nothing other than the usual IRS boilerplate, e.g. the following from 26 U.S. Code §911:

The term “earned income” means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.

This just kicks the semantic can further down the road: what exactly qualifies as "wages" or "salaries"? For example, I'm a US citizen with bona fide residence in the UK, spend fewer than 35 days per year in the US, etc. Let's say my monthly salary is £3000. I pay £225 into my (mandatory) pension, £250 to National Insurance, and £420 in UK PAYE taxes (these are all made up, but close enough). My pay stub will list:

Total payments: £2775 (£3000 less my pension contribution)
Total deductions: £670 (NI + PAYE)
Net payment: £2105

What number does one use for the purposes of calculating "Wages, salaries, tips, etc." (Form 1040 line 7)?

(a) £3000 ("salary")
(b) £2775 ("total payments")
(c) £2105 ("net payment", i.e. what actually shows up in my bank account)

The reasonable answer would seem to be (b), although I suspect the answer is (a) - but cannot find any guidance on this, either from the IRS or elsewhere. Any insights, or direction to more formal guidance, would be much appreciated.

you should declare your gross earnings (ie, before deduction of NI and PAYE) on your tax return.   

In your example, you'd actually declare the £2,775 (after pension), and you'd then need to claim double tax treaty relief under the UK/US treaty on form 8833 in order to correctly claim the relief for your pension contributions. 

The PAYE should be claimed as a Foreign Tax Credit on form 1116.

In the US certain things get taken off your gross salary to find the taxable wages given in W2 box 1 that you then enter on 1040 line 7. Thee items include things like medical insurance premiums and before tax contributions to retirement plans.

So you will need to make some choices to calculate your taxable wages. If a DTA will allow you to defer US tax on foreign pension contributions you could take those off your gross wages before entering them on 1040 line 7. Or (if your gross wage is less than FEIE) it might be better for you to include them in your taxable income use the FEIE and build up a US tax free basis in your foreign pension.

You also have the option of using foreign tax credits to defray the US tax.

Thanks for the clarification. I've just been claiming FEIE but going forward taking the credit may be more favorable.

nun, if pension contributions are reported as part of gross income, how does claiming FEIE impact the tax basis of the pension?

Thanks for the clarification. I've just been claiming FEIE but going forward taking the credit may be more favorable.

nun, if pension contributions are reported as part of gross income, how does claiming FEIE impact the tax basis of the pension?

If you decide not to apply the DTA on UK pension contributions you must declare yours and your employers contributions as part of your gross income and pay tax on them. If that gross income is less than the FEIE the you can exclude the full amount from US taxation and you have an employee and employer contribution US tax free basis. You have paid the tax (well excluded the earnings from taxation) going into the pension so those contributions do not get taxed again. You would probably want to claim the DTA tax free accumulation of gains within the pension. If you then return to the US when you take income from the UK pension the only tax due will be US income tax on the gains.

If you decide not to apply the DTA on UK pension contributions you must declare yours and your employers contributions as part of your gross income and pay tax on them.

It was my understanding that it was not possible to include employers contributions in the FEIE (only your own employee contributions on the pay slip).

So if you wanted to pay tax now also on the employer contributions you would have to declare them separately to the FEIE and use tax credits.

I asked about this here http://talk.uk-yankee.com/index.php?topic=82409.msg1099347#msg1099347.

It was my understanding that it was not possible to include employers contributions in the FEIE (only your own employee contributions on the pay slip).

You are correct

https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---What-is-Foreign-Earned-Income

Amounts Not Included In Foreign Earned Income
The previously excluded value of meals and lodging furnished for the convenience of your employer.
Pension or annuity payments including social security benefits.
Pay you receive as an employee of the U.S. Government.
Amounts included in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract.
Recaptured unallowable moving expenses.
Payments received after the end of the tax year following the tax year in which you performed the services that earned the income.

So the employer contributions could not be excluded in FEIE. Therefore, the FTC route might be better. Also your exemptions and personal allowance might take care of a lot of the employer contributions.

If you decide not to apply the DTA on UK pension contributions you must declare yours and your employers contributions as part of your gross income and pay tax on them. If that gross income is less than the FEIE the you can exclude the full amount from US taxation and you have an employee and employer contribution US tax free basis. You have paid the tax (well excluded the earnings from taxation) going into the pension so those contributions do not get taxed again. You would probably want to claim the DTA tax free accumulation of gains within the pension. If you then return to the US when you take income from the UK pension the only tax due will be US income tax on the gains.

Is it "cherry picking" to exclude the gains within the pension but not exclude the employee and employer contributions?  The IRS memorandum at https://www.irs.gov/pub/irs-wd/0612013.pdf says:

It is the well established position of the Internal Revenue Service, as expressed in Rev. Rul. 84-17 * * * and Rev. Rul. 79-199 * * * that taxpayers may not "cherry pick" among the provisions of the Code and the income tax treaties to which the United States is a party.

Is it "cherry picking" to exclude the gains within the pension but not exclude the employee and employer contributions?  The IRS memorandum at https://www.irs.gov/pub/irs-wd/0612013.pdf says:

A quick counterexample to support the idea that it is not cherry picking. There are other sections of the treaty that apply to salaries and to dividends, among other types of income. Let's say you receive a salary and invest part of it in shares, which pay you dividends. Now let's imagine you use the treaty to modify the way the dividends are taxed. Are you then required to opt into every treaty provision that could possibly apply to the original salary that paid for the shares from which the dividends were derived? I'm not a professional, but that argument wouldn't seem to hold much water, as the (earned) salary is totally different in character from the (unearned) dividends. The same distinction can be made between pension contributions and pension gains.